Tobacco observers pleased with burley auctions

Chris Bickers | May 17, 2006

With a short U.S. burley crop on the floor and a worldwide shortage of burley leaf in the background, the 2005-06 auctions of burley performed quite well. So well, in fact, that organizers have announced their intention of staging auction sales again in 2006-07.

“We were pleased with the price and the buyer acceptance,” said George Marks, burley and dark grower from Clarksville Tenn., and president of the Burley Stabilization Corporation, one of the two U.S. burley grower cooperatives. “I just wish we would have had more pounds to sell. But with the weather-affected crop, we just didn’t.”

Charles Finch, managing director of BSC, which is located in Knoxville Tenn., said there had been some apprehension about the first burley auctions without price supports.

“We weren’t sure we would get a lot of support from the buyers,” he said. “And the announcement came late which probably reduced the number of farmers who participated.

“But the offerings were good. And from start to finish, the demand remained fairly constant, fairly strong. The supply was down considerably, about 30 percent, and that probably helped the demand. We saw vigorous competition for just about all the tobacco that was offered.”

The auctions began on Nov. 21. After a holiday break from Dec. 15 to Jan. 9, the two final regular sales were held on March 2. Two cleanup sales were held on March 21-22 to get the last little bit of the crop. After this wrapped things up, total auction sales of burley for the season came in at 6.1 million pounds selling for an average price of $1.56 per pound.

Through March 2, at the 15 auction warehouses that participated this season, 5.8 million pounds had been sold at an average price of $1.57 per pound.

“All the farmers seemed satisfied,” said Scott Althauser, vice-president for leaf of Burley Tobacco Growers Cooperative Association (BTGCA) of Lexington Ky., the other burley cooperative. “At times, the bidding among buyers was vigorous, and it was generally more spirited than it was for the 2004 crop.”

An occasional lot of damaged tobacco was passed up by buyers. But for the most part, all sound leaf received a bid. “Any kind of useable, clean tobacco found a home,” said Althauser.

As at past auctions, growers had the option of refusing bids and taking their tobacco home, but none of the sources for this story remembered seeing that happen.

It was a “clearing house” type of market, said Daniel Green, comptroller of BTGCA, and there was no pool for “no sales.” Any tobacco that wasn’t sold had to be taken home, but this rarely happened.

The leaf that was offered was generally either tobacco that had not been contracted, or tobacco that had been produced beyond what a contract stated, or tobacco that received grades that didn’t appeal to contracting buyers.

Some of the tobacco that was grown without a contract was produced by farmers who have a philosophical objection to contracting and preferred to deal with trusted warehousemen.

Some of the warehousemen, in fact, made informal arrangements with individual growers to sell all their tobacco. In return, these warehousemen would advance money for production costs to the growers, repayable at the time of sale. This practice seems to have worked quite well for the 2005 auctions and may become more popular with capital-short farmers in 2006.

Before Christmas, there were seven buyers, though not every buyer followed every sale. At the end, three were left: Universal Leaf, TriState and BTGCA. But they bid actively right to the end.

The other markets were all in Kentucky: Danville, Harrodsburg, Lexington, Maysville, Mount Sterling and Somerset. Asheville and Lexington had two auction warehouses; all others had only one.

Marks, the BSC leader, said there will be no major changes in the marketing program in 2006. “But in the future, if things go like they did this season, I expect we will have to reduce the number of stations due to volume. I hope I am wrong but I don’t think I will be.”

The southern auction effort was organized by BSC. The northern effort has been put together by the Burley Marketing Association, an organization of warehousemen. BTGCA bought leaf at these auctions, but BSC elected not to.

Green of BTGCA said the auctions respond to a demand on the market. “This is a great opportunity,” he said. “The need is there.”